Blog: Why is Indian steel demand slow to realise its growth potential?

Why is Indian steel demand slow to realise its growth potential?

Adam Szewczyk, Head, Economic and Statistical Analysis

12 December 2017

One year ago, while visiting India, I witnessed first-hand the Modi government’s shock announcement banning the use of 500 and 1,000 rupee bank notes. On my visit to India last month to present wordsteel’s steel demand outlook at the Platts Steel Markets Asia Conference, this so-called demonetisation move intended to scrap black money and counterfeiting, along with the recently introduced Goods and Services Tax (GST) designed to streamline a fragmented taxation system, were the two topics polarising the Indian society.

An important takeaway from this debate is that India has been making steady, if not impressive, progress in its reform efforts and the process may even gather pace with every Indian state competing to improve their business and investment environment. The GST implementation on July 1, 2017 can in this respect be viewed as an important landmark in India’s transformation process.

Replacing multiple state taxes, the universal GST tax scheme is expected to reduce the logistics costs and improve tax administration in the long-term. However, there are voices being raised concerning the impact of demonetisation and GST on small enterprises and the agriculture sector.

While India is already one of the fastest growing economies in the world with its GDP set to increase above 7% in the next two years, according to the IMF, we can expect India’s growth potential to be enhanced over time as India makes more and more reforms.

How does India’s steel demand prospect fit into this constantly evolving landscape?
In the past couple of years, India’s steel demand has not been performing particularly well partly due to the above-mentioned reforms but also due to a sluggish private investment resulting from a highly leveraged corporate sector. But on average, in the past decade, India’s steel demand has been growing on a par with the GDP: during 2001-2016, GDP grew at 7.34% and steel use at 7.43%. This is a different scenario to that of China where steel demand grew at a rate that was much faster than GDP during the take-off period.

Can we expect to see this same pattern in India in the future?
Not so likely. Everybody agrees that India’s steel demand has big potential considering its huge population and still low-level of infrastructure and housing development. However, it is not expected that India will replicate China’s explosive growth pattern. India’s growth model is very different from that of China – it is more service-oriented and inward-looking, more environmentally conscious with a stronger focus on equity, and less controlled by a strong central government.

Therefore, India is likely to show an S-curve (the relationship between per capita income and per capita steel use) which will be less steep than that of China. However, the other side of the coin might be that it will take longer for India’s steel demand to peak compared to China – China’s steel demand has increased dramatically since 2000, but then peaked in 2013.

steel demand in India compared to China, growth potential compared

S-curve, China and India

Add you comment here

  • 1

    Very good insight indeed Adam. I think government is taking steps but unfortunately these steps lack honest efforts and there is still an Indian bureaucratic structure in place obstructive to growth.

    avatarSanjeev ManochaDec 12, 2017 10:51:22 PMReply

  • 2

    India is a growing and huge society. National Steel Policy 2017 announced in June 2017 is expected to provide the necessary impetus to growth of steel production and consumption in India.

    avatarRakesh Kumar SinghalDec 17, 2017 7:53:16 AMReply

  • 3

    As we know India is growing with a huge steel industry. Well explained graph.

    avatarJayesh GroupDec 27, 2017 6:52:35 AMReply

  • 4

    In the National Steel Policy 2017, we have taken a holistic and comprehensive view of the steel sector in India and its key growth drivers to ensure sustainable Indian Steel industry is rightly poised to growth of all segments of the industry.

    avatarPREM KISHOREJan 30, 2018 9:29:58 AMReply

* Required field (your e-mail will not be published)